World Bank cuts growth forecast for China to 7.6pc

Emerging markets advised to beef up economies to guard against next bout of financial unrest

PUBLISHED : Thursday, 12 June, 2014, 1:10am
UPDATED : Thursday, 12 June, 2014, 12:55pm

The World Bank cut its forecast for economic growth in China this year to 7.6 per cent from its projection in January of 7.7 per cent.

The Washington-based lender also lowered its forecasts for the other BRIC countries - Brazil, Russia and India - and called on emerging markets to strengthen their economies before the US Federal Reserve raises interest rates.

The World Bank predicts the world economy will expand 2.8 per cent this year, less than its projection in January of 3.2 per cent. The forecast for the United States was reduced to 2.1 per cent from 2.8 per cent.

The setbacks may be temporary: its estimate for world economic growth next year was unchanged at 3.4 per cent.

"The global economy got off to a bumpy start this year, buffeted by poor weather in the United States, financial market turbulence and the [Ukraine] conflict", the bank said in its Global Economic Prospects report.

"Despite the early weakness, growth is expected to pick up speed as the year progresses."

Developed economies, where domestic demand is improving as fiscal pressure eases and labour markets recover, are providing the global expansion with momentum as their developing counterparts fail to accelerate.

In the report, the World Bank warned emerging markets that the next bout of financial unrest may catch them off guard, recommending smaller budget deficits, higher interest rates and measures to boost productivity.

Over the past year, emerging market assets have recovered from two sell-off periods, including one after the Fed first indicated in May last year plans to trim US monetary stimulus. The extra yield investors demand to hold dollar-denominated debt in developing countries over US Treasuries has since decreased to the lowest since January last year.

That recovery is giving countries a respite to strengthen their economies before the inevitable increase in borrowing costs that will follow the Fed's interest rate increase, said World Bank economist Andrew Burns.

The bank maintained its forecast this year for the euro zone, which is still recovering from its debt crisis, at 1.1 per cent, while its economic forecast for Japan was trimmed to 1.3 per cent from 1.4 per cent.